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The Ultimate Guide To Unsecured Loans

21Nov2017

Personal loans make it possible for the everyday person to afford vacations, new vehicles and home remodelling projects. Plus, unsecured loans are the best option for obtaining the cash you need to pay for surprise expenses.

For instance, medical bills, legal fees or mechanic shop costs. Whatever life throws your way, you can rest assured you have the money to cover it.

Unsecured loans allow you to borrow money without collateral. Read our ultimate guide to unsecured loans and why they can be a good option for you!

But what does it take to get approved for an unsecured loan? In this guide, we’ll cover the things you should know about these loans before you apply.

The 411 On Unsecured Loans

What makes an unsecured loan attractive to borrowers is the fact you don’t need collateral to guarantee it. For instance, with a mortgage, your property acts as collateral.

If you default on the loan, then the lender can take the property as payment (and if there’s anything left, you receive it).

Unsecured loans don’t require collateral, which makes it less risky for you, but riskier for the lender. So with that, you can expect the interest rates to be a bit higher.

Of course, there are other methods lenders can use if you default. For example, taking you to court and seeking to garnish your wages.

Who Gets Approved For Unsecured Loans?

Obviously, getting approved for an unsecured loan is a lot harder than a secured loan. Good credit is the first step to getting fast approval. Plus, it can award you with lower interest rates.

However, there are some lenders that will approve applicants with bad credit. But you’ll need a co-signer in order to get the loan.

Types Of Unsecured Loans

Now, there are various types of loans you can get. Let’s review some of those options.

Signature Loans

Here, you have the most basic type of unsecured loan. All that’s required to secure this loan is your signature. And your promise to repay the loan.

You can apply for a signature loan at a bank or credit union. And what’s even more convenient is that you can use the loan for whatever you wish.

In most cases, these are set up with installment payments that amortize over the years. After receiving your funds, you will pay a fixed monthly amount until it’s paid off.

If you have good credit, then you will receive a low-interest rate. As you begin making payments, it will help to boost your credit rating. Then in the future, getting a signature loan will be cheaper.

Lines Of Credit

It was a lot easier to get a line of credit in the past. Today, you have to jump through hoops to prove you’re worthy of one. For one, you need to have good credit. Otherwise, the line of credit you can receive is much lower.

What’s great about credit cards is that you have access to funds for years. The key is to repay the balance on them as quickly as possible, so you don’t end up in never-ending debt.

This too can help build your credit, paving the way for you to get higher lines of credit in the future. The only problem with credit cards is that it’s easy to fall into a debt loop, which can kill your credit rating and your financial wellbeing.

Peer To Peer Loans

Now, banks aren’t the only way to get your hands on unsecured loans. Peer to peer loans is available from people who are willing to fund your loan. These are similar to signature loans and normally have fixed-rate installments.

The interest rates are also fairly competitive. And as always, your credit matters. But if you have a good credit score, then you can get your hands on a large chunk of money (compared to other loans).

Payday Loans

Those who have bad credit or wish to get funds quickly can resort to payday loans. These are normally short-term, requiring payment by your next pay date.

In most cases, you must repay your loan within 2-4 weeks. The interest rates are much higher than a typical unsecured loan because of its short-term nature. However, it’s a great option when you need to take care of emergency expenses fast.

Fixed Rate and Variable Rate Loans

You normally have two options when selecting the interest rate for your loan. For instance, you can opt for a fixed-rate or variable-rate loan.

As it sounds, a variable rate loan comes with wavering rates, while fixed-rate comes with a set rate. The good thing about a fixed-rate is that you always know what your monthly payment will be. However, you can’t take advantage of interest rates that dip lower throughout the year.

But keep in mind that interest rates may go higher than your initial rate if you choose a loan with a variable rate.

Securing An Unsecured Personal Loan

So you’ve decided to take a leap of faith and apply for an unsecured loan. What can you do to improve your chances of getting approved?

For one, you want to check to see what’s on your credit report. You can order one for free from all three credit bureaus. What you’re looking for are errors, which you should fix right away.

Next, look at your credit score – if you have a 760 or higher, then you’re in the clear. If not, you can work on improving your credit rating by paying off old balances. Otherwise, you’ll have to opt for a lender that accepts bad credit.

Begin shopping around for a lender online and see who offers the best interest rates and payment terms.

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